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Why Negative News Flow Makes Me Want To Buy BAE Systems plc

I like to buy stocks whose news flow is negative. This may, at first, sound rather Foolish but, if you think about it, everyone wants to buy shares when they are low in price and sell when they are high in price.

For shares to be low, there has to be some bad news kicking around: things have to look bleak. Similarly, for shares to move higher, there needs to be some good news, or else why would they be high?

So, the fact that news flow from BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) continues to be negative does not put me off at all. In fact, it makes me want to buy shares in the company!

Indeed, recent news has continued to be negative as it involves a blocked investigation into BAE’s arms deal with Saudi Arabia. Recent news on the topic includes the loss of a highly sensitive cache of documents by the Serious Fraud Office (SFO), which was conducting the investigation.

The SFO has admitted to “accidental data loss of 32,000 document pages and 81 audio tapes and electronic media“. The loss has sparked two separate reviews at the agency.

Obviously, such news is not good in the short term for BAE’s share price. However, for long-term investors such as me it presents an opportunity.

BAE currently trades on a price to earnings (P/E) ratio of just 11.5, which compares very favourably to the FTSE 100 on 15.2 and BAE’s industrials industry group on 23. Furthermore, the shares yield an impressive 4.4%, with earnings per share forecast to grow at a modest 3.5% per year over the next two years.

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> Peter owns shares in BAE Systems.